Chilli peppers are highly regarded primarily as spices. Additionally, they are also used as ingredients in nutraceutical and therapeutic products. Chilli-based nutraceuticals and functional food formulations are being explored for their roles in promoting preventive health and supporting overall well-being. Capsaicin and related capsaicinoid compounds have been shown to produce analgesic, anti-inflammatory, antioxidant, metabolic, and cardioprotective effects through the modulation of the transient receptor potential vanilloid 1 (TRPV1) pathway. Important antioxidants like carotenoids including capsanthin, capsorubin, and β-carotene have reported benefits on visual health and anticancer effects, while contributing to chilli’s antioxidant potential. Phenolic and flavonoid compounds in the complex phytochemical matrix of chilli provide health-promoting benefits and therapeutic effects against chronic diseases, especially pain, obesity, diabetes, cardiovascular diseases, and cancer. Recent advances in drug delivery systems including polymer-based nanoparticles, nanocarriers, and lipid-based vesicles, and cyclodextrin inclusion complexes have improved the way bioactive compounds from chilli peppers can be efficiently utilized. These technologies increase their stability, solubility, and bioavailability while reducing the pungent effect of capsaicin and allowing for more precise therapeutic use. Still, capsaicin and its metabolites can cause irritation or toxicity when used in high concentrations. This makes careful control of dosage and delivery methods essential. The wide range of pharmacological and nutritional benefits found in chilli peppers continues to make them a valuable natural source for developing health supplements, fortified foods, and advanced drug delivery applications.